The transmission of a virus with flu-like symptoms has pushed world economies to an unprecedented standstill. Stock market crashes, mass unemployment, and disruptions hinting a recession – are only the tip of the iceberg and its underlying repercussions are likely to unfold with time.
To combat an impending economic depression and prevent a wave of homelessness, the government has announced several rent relief measures looking out for tenant’s interests and essentially placing a period on the rental incomes of landlords. Recently, Delhi’s CM Arvind Kejriwal requested the landlords to forgive rent for the next 3 months and further went on to state that the government will pay rent if tenants fail to do so. Following suit, the Uttar Pradesh government also issued a magisterial order to imprison or fine landlords who fail to postpone rent collection by a month. Furthermore, owing to the lockdown, the Maharashtra Housing Department advised landlords to defer rent for at least THREE MONTHS and not evict tenants for non-payment.
However, mere announcements in the absence of government ordinances for deference of rent do not legally absolve tenants from rental dues. This circular is advisory in nature and should not be misconstrued as absolute or legally enforceable by tenants in Maharashtra. The rationale behind the order was to provide some breather to tenants unable to pay rents during a crisis.
Landlords with deep pockets such as the Lodha Group announced a full waiver for over 200 commercial tenants until normalcy returns. However, not all landlords can afford rental waivers or deferrals, especially senior citizens whose survival largely depends on rental incomes. So for the lack of respite by the government, landlords continue to make mortgage payments, electricity and water charges, insurance, maintenance, property taxes, etc.
Realizing this, the RBI announced a 3-month EMI holiday on various loan types but such forbearance programs only defer mortgage payments. The interest continues to accrue on the outstanding loan amount, rather than completely waiving off or discounting it. Unfortunately, commercial lesssees may not directly benefit from these orders as many banks have the prerogative of formulating relief packages and evaluate applications to determine who can avail the facility.
In the absence of any clarity by the government on rental obligations under commercial lease agreements, businesses are left struggling with zero sales coupled with salary and rental obligations. Amid the pandemic, the much forgotten ‘Force Majeure’ provision in contracts and leases has gained traction and attention. The commercial tenants could invoke the ‘force majeure’ to absolve them from rental payments during “an event beyond the parties’ control”. However, force majeure events are not exhaustively laid out under the law and applicability of this provision depends on the language of the rental agreement and interpretation of the courts. Therefore, the parties must renegotiate the terms of the agreement to provide breathing room to both parties.
A question that may arise is whether a Lessee can invoke the Doctrine of Frustration in the absence of a Force Majeure Clause for Non-Payment of Lease Rent? Typically, the Doctrine is invoked in circumstances where the purpose of their contract is held to be frustrated under Section 56 of the Indian Contract Act. However, the Supreme Court in Raja Dhruv Dev Chand v Raja Harmohinder Singh, observed “Authorities in the courts in India have generally taken the view that Section 56 of the Contract Act is not applicable when the rights and obligations of the parties arise under a transfer of property under a lease’’. Thus, it is unlikely that a lessee can claim frustration of contract in the absence of a Force Majeure clause under a lease agreement and seek waiver of lease rental as consequence of a Force Majeure event. However, most tenancy agreements don’t have the provision of ‘force majeure’ and cannot invoke the doctrine of frustration and so unless announcements are backed by ordinances, the uncertainty of its enforceability remains.
Regardless of the government efforts, individual circumstances could lead to foreclosure proceedings across the country. Fortunately, the Supreme Court held, “A tenant cannot be arbitrarily evicted by using the provisions of the SARFAESI Act as that would amount to usurping the statutory rights of protection given to the tenant.” Thus, in the event of a landlord’s failure to repay the loan, Section 35 of SARFAESI Act cannot be used to bull doze the statutory rights conferred on the tenant by the Maharashtra Rent Control Act, 1999.
The customary strained landlord-tenant relationships are further distressed with the lack of clarity in Central and state government announcements bringing fore questions of eligibility and applicability of relief measures. Until the air clears (pun-intended), Indians will continue to rely on legislations that hugely favours tenants in rental disputes, leaving landlords grappling to survive the crisis without any respite. In the interim, as parties await clarification from the government, it is advisable to facilitate a shared objective of contractual performance through collaboration and provide a win-win solution to all until normalcy returns.
(By Sonam Chandwani, Co-Founder and Managing Partner of KS Legal & Associates)